Request paves way for massive restructuring as Oger business empire teeters
Construction giant Saudi Oger has asked banks to agree to a freeze in repayments on at least 13 billion riyals ($3.5 billion) of debt, sources aware of the matter said, as it seeks more time to collect money owed by the kingdom's government.
The request opens the way for the company, owned by the family of Lebanese Prime Minister-designate Saad Al Hariri, to press ahead with seeking one of the largest debt restructuring deals in the Gulf since the slide in oil prices in June 2014.
A standstill agreement allows troubled companies to suspend payments to creditors and halts any attempts to pursue legal action for reimbursement, giving them breathing space to reach a restructuring deal.
It was not clear whether the request, submitted to banks in the kingdom late last month, extended to the conglomerate's bank debt outside the kingdom as well, or how long a freeze on debt repayments would last.
A Saudi Oger spokesman did not respond to an emailed request for comment.
"Saudi Oger has asked banks for a standstill while they collect money from the government," one source said.
Another source said a standstill agreement was a first step "but the company will need some form of help from the government for there to be a resolution."
Saudi Oger is a mega-contractor that for years built grand infrastructure projects in the kingdom, from universities and roads to airports and hospitals.
But the collapse in oil prices has prompted the government to tighten spending, hurting contractors such as Oger that rely on the state for most of their projects.
The government owes Oger about 30 billion riyals for work it has completed, a Saudi-based source with knowledge of the matter told Reuters in September. It is unclear how much of that amount remains outstanding.
One analyst estimated unpaid dues to the construction sector as a whole totalled 80 billion riyals.
Hopes of the payment backlog easing rose after the kingdom's state news agency said on Monday that the government had discussed settling payments to the private sector before the end of the year.
The sources said it was too early to say whether banks would agree to the standstill request. Any failure of the company would send ripples across the Saudi banking system and wider economy.
Oger's debt to local banks was estimated at 13 billion riyals, of which 7 billion riyals was already committed and a further 6 billion riyals consisted of credit that was allocated but was currently undrawn, one of the sources said.
That 13 billion riyals is higher than the 10 billion riyals in combined profit reported by all Saudi banks during the third quarter.
A debt restructuring appeared a more likely prospect after the government ended talks aimed at saving the company, Reuters reported in September.
In other signs of pressure on the Oger business empire, Saudi Oger has begun talks with potential buyers of its 20.93 percent stake in Jordan-based Arab Bank, while Oger Telecom is in talks about a potential stake sale with Saudi Telecom, Reuters previously reported, citing sources.
Oger Telecom is also in talks with creditors to renegotiate debt before its next repayment on a $4.75 billion loan in March, according to sources.